Foreclosure When Your Bank Fails

Posted on August 13th, 2008 by saman

It is common knowledge that because of the foreclosure crisis, banks across the nation are dealing with many financial issues, just like the typical homeowner is. There are about four hundred public and private lenders that have closed down because of the credit and current foreclosure crisis that is now facing our country. Many homeowners who are dealing with foreclosure are witnessing their mortgage company go down the drain. Many homeowners are wondering if they still need to pay their mortgage if their lender goes under.

When your lender fails, another servicing company or investor will take over the loan. The loan term and your payment responsibility remain in place. The original terms of the loan are not able to be changed by the new owner of the loan and they cannot raise your interest or put additional fees in place unless those types of changes were authorized in the first loan agreement. Basically your original loan and terms remain the same but another company takes it over.

In a few cases, a foreclosed home cannot be claimed by the bank at a public auction. There a few reasons this could happen but in general, the property is not worth taking. In a number of neighborhoods, the property values are so low that the property is basically worthless. The bank may have no desire to take on the maintenance and expense of the property. Properties such as this are derelict properties and are a large burden to county and state governments as well as taxpayers.

In special situations, a victim of foreclosure may be able to get the property back by paying the back taxes. They may keep living in the property for a certain amount of time and can become the legal owner once again. This would get rid of the mortgage on the home and the victim of foreclosure will own the home and it will be free of liens. In many states a property would be sold at public auction but if the lender does not desire to gain possession of the home, there is a very good chance that nobody else will want to purchase the home at a public auction.

Most of the time if your bank goes out of business you will have to continue making your mortgage payments in order to stay in the property. If your bank has been taken over by the government or bought out and you are unaware who to send your house payment to, you can save your money until you are contacted by another lender who shows proof that they now own the loan and ask for payment.

If you were going through the foreclosure process when your bank went out of business, the new lender will continue the process and the foreclosure will continue. However, the new mortgage holder may have different policies when it comes to helping foreclosure victims so it may be a god idea to call your new mortgage holder to find out what their policies are when it comes to helping those who are in foreclosure.